Oil, Gold Forecast: Two trades to watch 140926

Oil rises after Middle East weekend attacks, US diesel hits $6

Oil prices are rising some 3% on Monday, adding to 8% gains across last week and keeping oil prices at multi-month highs.

After a modest pullback on Friday, more attacks and increased hostilities over the weekend in the Middle East are keeping supply concerns front and centre and the risk premium on oil high.

At the time of writing, WTI is trading up at $103, while Brent is up at $107.

Over the weekend, Houthis attacked Saudi Arabia, and there were fresh strikes in the Strait of Hormuz. Saudi Arabia said it had to suspend operations in its crucial east-west pipeline following the attack, with no indication of when it will reopen. This is important because the pipeline was the Hormuz bypass, and without it, 4% of global supply has no alternative route. Houthis also reportedly struck targets in Saudi Arabia and ships in the Bab al-Mandeb.

The Strait of Hormuz continues to see extremely low levels of vessels transiting. A delay to planned talks between Iran and other Persian Gulf powers over reopening the Strait of Hormuz has added to worries that supply disruptions will continue.

Elevated oil prices are translating quickly into the real-world economy, with U.S. diesel crossing $6 a gallon last week for the first time. Commerce Bank raised its year-end diesel forecast to $1,200 a tonne from $950. Jet fuel went from $1,230 to $980, and the bank pushed its Brent target to $85 from $75.

While crude above $100 a barrel is a commodity story, diesel above $6 makes it an inflationary story as well.

Oil forecast – technical analysis

After breaking out of the symmetrical triangle pattern, oil rose above several key resistance levels before running into resistance at $104.60, the 23.6% Fibonacci retracement of the $55–$120 move. The price has eased back slightly towards $103, while the RSI remains in overbought territory, suggesting further consolidation could be on the cards.

Buyers will need to break above $104.60 to turn attention towards $110 and then $112, the 2026 high.

On the downside, immediate support is seen at $100. A break below this level would turn attention towards $95, the 38.2% Fibonacci retracement, followed by $88, the 50% Fibonacci retracement.

Gold falls as Fed rate hike expectations jump ahead of the FOMC rate decision

Gold has started the week on the back foot after stronger U.S. inflation data on Friday and amid disruptions in the energy market, which have sparked rising expectations for additional rate hikes from the Federal Reserve.

U.S. core CPI was hotter than expected, and oil prices have continued to rise. Market expectations now see an 86.5% chance of a 25-basis-point rate hike from the Fed this week, up from 65% before the inflation data was released.

Not only has the market become increasingly convinced that the Fed will hike rates this week, but also again in December.

Higher interest rate expectations increase the opportunity cost of holding gold by lifting bond yields. A stronger U.S. dollar also weighs on dollar-denominated gold.

With the rate hike almost fully priced in, Warsh's press conference and new rate projections will attract the most interest.

Geopolitics are also in focus after disruption to Saudi Arabia's east-west pipeline, which raises fuel supply risks in the Middle East. While the disruptions could support gold positively due to safe-haven flows, rising inflation expectations will continue to put upward pressure on yields and could drag on gold.

Gold forecast – technical analysis

 

Gold broke out of a symmetrical triangle pattern, rallying to a high of 4,690 before rebounding lower, and is now testing key support around the 4,300 level, the confluence of the 200 EMA and the 23.6% Fibonacci retracement of the 5,598 high and 3,940 low.

Sellers, supported by the RSI below 50, will look to break below this level, which could see sellers gain traction towards 4,200, the round number, and 4,100, the March low. Below here, attention will turn back to 3,940.

Should the support hold, buyers would need to rise above 4,500, the round number, and 4,570, the 38.2% Fibonacci retracement. A rise above 4,700 creates a higher high, turning attention to 4,770, the 50% Fibonacci retracement.